Round 2: How to model building a media buying business vs. just being an affiliate (8)
Round 2: How to model building a media buying business vs. just being an affiliate
If you didn’t read my last 3 part series. It was about how to build a system for freeing up your time to spend it on high value activities.
Well guess what this is your first HIGH VALUE ACTIVITY!
Obviously a lot of the last post was taking things off your plate and putting them on others. But you have to be careful about that. Why? Because, the MOST IMPORTANT thing about hiring people; is that you put them into good systems.
But how do you build and design those systems?
I’m not going to claim to be an expert in this department. I didn’t graduate from college and have learned from the world of hard knox. No fancy MBA’s or prestigious schools here. However over the last 20 years of running small to larger businesses I’ve constantly re-analyze what I’m doing and make it better. So this is all based on many years of building systems and companies.
Hope that’s good enough for you…. if not well you know what’s I’d say if you know me 
I hope there’s some PhD’s in business management that can give pointers in the comments on how to do things even better and even more efficient.
Lets get started with the magical process (well not really magical, but it sounded good)….
Step 1 – Go to a quiet place for 1-2 days with no internet and take a step back
I know this sounds lame but it’s extremely important. As online marketers the world we live in floods us with a constant onslaught of valuable and important information. Affiliate managers, merchants with issues, account reps, budgets getting cut, Skype groups, friends on IM, emails, forums to keep up with, etc. You may miss on that mythical unicorn of an opportunity doing this…. but so what? There’s always more.
For this exercise you really need to clear your mind.
The first time I did this I went to Lake Tahoe, with my family, for 5 days. A4D had wrongly got drug into a situation with the FTC that was cheaper to settle out of then the legal bills it would have cost to fight. So we settled with them and needed to entirely change our business model.
I stepped away so I could clear my mind for a while and I suggest you do this too.
Step 2 – Optimize Your Companies Focus Using ABSTRACTION (Least Common Denominator of your Business Successes)
Once you’re away. Take a step back. What that means is stop focusing on the details and start to look at the bigger picture.
If you read my last post this is going to sound similar but rather then extracting out the tasks you yourself are doing and optimizing your time to make sure you’re focused on high value things. We’re going to do the same thing for your business/company. I call this ABSTRACTION, combing extraction and abstract thinking.
What abstraction is, is trying to find the “least common denominator” in something. Most likely if you’re advanced in your affiliate/merchant/network business you’ve had a lot of success and failures. You’ve probably spent a bunch of time working on opportunities that you thought could turn into something and didn’t. Maybe you spent a bunch of time on a small niche and in the end when it scaled it was only $100/day profit or less. Or maybe you listened to friends/forums about how someone was killing it only to find out they were doing something totally illegal and uncompliant, but you invested the time.
In this industry most people (including myself) have the “shiny bobble syndrome” as we call it in the A4D office. There’s so many amazing opportunities constantly being thrown at us, we’re always tempted to chase each one.
Oh I’ll just run a little test….. have you said this before?
How many of those little tests usually work out?
Do they distract you from your core competencies?
Do you have a core competencies? hahah
As you can imagine at A4D Performance we have a massive amount of opportunities that come across our email, IM and phone every single day. Probably 3-5 new merchants, 20-40 new affiliates , 1-2 new ad networks, and the list goes on. How do we make heads or tails of it all? Everything looks like a good to great opportunity.
What we have to decide is whether it fits within our Core Competency; which is what we focus on 100% of the time.
What I do quarterly as the leader of A4D is figure out what our core competency is, gaining more focus every time. I question whether it should be. Question whether we should change it.
Once we have that Core Competency figured out we evaluate all opportunities against it…
Is this opportunity in line with what we want and what we’re good at? If not most likely it’s going to suck up a lot of resources (money & time) and yield a small outcome.
Could it turn into something amazing? Sure, most of the time the chances are very small.
This doesn’t mean we pass on everything all the time. But we make a very conscious decision to invest the time and resources into building out a division to do something. It’s very different then, well lets just test this…
I know that’s a lot of words to say little, so let me give you an example.
When we had to pivot A4D I sat with one of my main guys and we started detailing what made a great offer for us a a company….
High CPA payout $30+ – so it could support expensive traffic and the margin that was made per sale was considerable
Limited to no caps/budgets – Nothing worse then caps when scaling
Direct billing offer (credit card, premium sms, google play, etc) – leads are a HUGE business but just very finicky, hard to get budgets and extremely hard to get quality. Wasn’t our wheel house so we wanted direct billing offers.
Semi-Monthly net 15 or better payment terms – hard to scale a business with net 30-45 at 200-300k/day in revenue which was what we were aiming for.
There’s more but you get the point…. don’t want to give away our whole model 
What we’re doing here is abstracting out the values that make something “Great” for us.
We built and wrote this list on the board. Then we’d reference it all the time. Every time a new opportunity was pitched we’d look at the list and think “does it fit?”
Lets look at some verticals we ran that didn’t have all the pieces.
Dentist leads – Although a good client of ours and we still work with them to this day. Definitely didn’t meet a couple of the criteria. It was a lead generation offer not a credit card submit. Also fairly low payout. This lead to a TON of work to manage the relationship, quality out of every pub fluctuated day to day on the same traffic, and overall limited budgets. Took 3-4 hours a day for my top guy to manage which distracted him from more fitting opportunities.
Games – Low payouts = low $ margins for the network. Really bad about budgets typically want big spends for 30 days and hope to self grow from there. Payment terms terrible, world golf tour took a year to pay us (at least we got paid). Again doesn’t mean games is a bad business. Just for 10 cent margins it takes a lot more people and budget to produce the same amount of revenue.
There’s a lot more and we learned through the process. In the end we feel something could have 1 thing missing possibly it just depends on what it was. But 2 was going to typically be a waste of time and resources in the end.
You’re probably saying what’s the holy grail of offers you found….you’re going to need to ask your affiliate manager the ones we found that fit the model that works for our publishers.
It’s very hard to leave opportunity on the table but that’s what makes great people and companies great.
Now sit down and do you’re abstraction. We’re going to need it to build a business model in step 2.
Back tomorrow with post 2 of 3. I know, I know there’s a ton of droning on here but what else am I going to do with 8 hours on a plane. Hope it’s helpful.
- See more at: http://www.oooff.com/php-affiliate-s....C8ww5x1X.dpuf
Well written mate!
"Stop focusing on the details and start to look at the bigger picture."
I think this is super super important.
It's so easy to put your head down and start grinding out campaigns, then never looking up to see where how you are positioning yourself.
I'm also a fan of having an internetless getaway. So good for the mind...and family!
YES. Awesome stuff.
Focusing on what works for you and your company is a piece that a lot of affiliates completely miss from the puzzle. Both in affiliate marketing and elsewhere, I've observed time and time again that what becomes a successful venture for me is waaaaay away from what's a successful venture for others.
And yes, getting away from the internet is absolutely vital sometimes. I'm a fan of long walks and pubs with extremely thick granite walls
Number 2....
affiliate assembly line
This how we're going to have your affiliate business running when we get done here. Just churning out campaigns like assembly line workers. *disclaimer: probably not
Still with me? Have you been doing the exercises? Each of these things leads to the next. We’re going to use pieces to build on.
That means if you haven’t done the past posts I highly suggest heading back and doing them now before moving forward.
Step 3 - Building a media buying business, financial model
For many years I never had a model I operated off of. Well I take that back, I did, just nothing in writing. It was all in my head (bad idea). I had started being an affiliate and all I knew was "I just want to make money". Then I started A4D and that carried on the same way. I would hire people looking at the overall bottom line and thinking well they're making money so I'm good. But operating this way made me not want to hire anyone that didn't directly make the company revenue. Such as sales reps and account managers.
If you're going to start hiring employees they can't read you mind. You need to have things down in writing so everyone is on the same page.
Rather then discuss it lets dust off our Excel and start plugging numbers into a spreadsheet.
But Jason I'm not quite sure how to do that.
No problem, I’ve built a basic Media Buying Affiliate Company Financial Model that you can use.
Click Here to Download! Affiliate Media Buyer Financial Model Template - P&L
Once downloaded click and open it up, you'll see all the departments a media buying company could have. Sure I understand that you're not going to want hire all these people to start. But you need to consider who is going to do these things. You can make things like IT/Dev relate to outsourced companies so you budget for those expenses monthly.
As you blankly stare at this spreadsheet you'll see fancy blue numbers and black numbers. The blue numbers are the things you can edit. The black numbers are things auto-generated based on the values you put in the blue numbers.
Blue = Editable
Black = Formulas auto-calculated
There's also some assumptions set at the top.
How many days in the month answers itself.
Because we're using net profit a day you're basing this all off of your projection of what a buyer can make the company.
Payroll taxes are based on your state in California they're roughly an additional 9% on top of salaries. Average health insurance cost per employee is around $500 for us right now. Older families as much as 1300/mo., younger kids as low as $300.
Number of employees is for the calculation of total insurance cost a month.
Under the media buying section you'll see we have it setup to pay our buyers a %. I always believe in motivating your staff that generate the revenue for you with commissions and giving them a piece of what they're generating. This spreadsheet also has a department manager setup. Typically the department manager is going to have a commission override on the whole department based on the outcome and production.
Then we have the rest of our support staff below. All this adds up to the totals at the bottom. Below that we have the total salary of the employees plus the taxes and insurance.
Next we have all the month fixed expenses to make the business run.
Lastly we total up expenses from fixed + employee and subtract it from the total net profit.
Not too difficult right?
Now stop and think how powerful this might be for you for just a second. Say you have your spreadsheet all setup and you're thinking about hiring another buyer, plug them in and see how it effects the overall net as they learn.
I save a month end version of this for each month with the actuals for that month. I keep a folder structure like Finance->Monthly Reports->2013->August.
To make sure my projection sheet is staying on course I have my finance team send me the P&L from Quickbooks once it's reconciled for the month. It typically takes them 15-30 days to get me finals. Then I compare the two and see what tweaks I could make to improve the projections the next month.
I'm not sure if you see how powerful this is to yet.
Any decision I decide to make I plug into this financial spreadsheet first to see how it'll effect the company revenue/profit in the short term and the long term.
How do I decide what we can pay in salaries and commissions? Work the spreadsheet.
How do I decide what I can pay in rent? Work the spreadsheet
I encourage you to play with this Excel spreadsheet to model it to your business now. And then also where you want to be in 12-24 months from now. Build your projected financial sheet and you have your target you're aiming for. Obviously things are subject to change but you need to have a vision to get where you want to go. This will just make it more concrete.
As with the last set of posts this is getting too long for all one sitting. I'm going to break this into a few posts. So the next will go up on Thursday.
See you in a couple days.
Ya forgot the attachment/download mate!
Download link from Jason's blog: http://www.oooff.com/php-affiliate-s...mplate-PL.xlsx
Thanks Peanut. Hmm that sounds strange I call my son that sometimes.
And 3 of 3... Got a 7 part series on how web servers, web browers, tracking and how to debug tracking issues next week. Stay tuned!
job description clipboard
Welcome back. Glad to see your'e still with me.
Lets get started... (by the way the title of my posts were 3 steps originally, apparently I don't know how to count.)
Step 4 - Write job descriptions for the roles on our financial model
That that we know what we’re going to focus on, you know what you need to get off your plate that low value
We’re going to write job descriptions… YAY! This sounds fun doesn't it? NOT!
This isn’t the kind HR would make you write with all the legal crap in them. But rather just a list of duties that you’re going to put someone in charge of.
But it is important. Why you ask? Because we need to think about what you do on a daily basis. If you read through my last 3 part series you already have documented the jobs you do as an affiliate everyday. If you haven't read it click here and go do it now because it'll be imperative to you accomplishing this successfully.
Now get out your list of tasks that you do on regular basis and get your spread sheet out financial spreadsheet out from step 1 that has your roles on it.
Now our goal is to figure out a business model where you can off load 90% of the stuff that isn't super high value.
Granted we're not going to hire all these people all at once. But lets look at 12 months out. With moderate growth and realistic expectations. In the affiliate world we know offers come and go. Budgets come and go. Sources change policy. And on and on. So we obviously want to build a business model taking all that into consideration.
With our 1 year out projection on our spreadsheet lets start off-loading the tasks you do now on to the employees you've setup. The goal at the end of this is you have nothing on your plate accept the high value tasks.
Now you have not hired a SINGLE PERSON yet, most likely. But, how good does this make you feel? There’s a semi-clear vision in site and a path to head down.
You have just created a clear specific financial road map to get you to the end of that path.
Enjoy the journey!
Originally Posted by Mr Green
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